Tuesday 30 June 2020

Green Packet's Revenue Jumps 50% in Q1 to RM147mil

From the title above, I guess all readers will think that GPacket has a great financial quarter.

However, when you try to find out how much profit it made, you might vomit blood.

Revenue increased 50% YoY but it suffered loss after tax of RM35mil.

OK, there's one-off item inside. Without it, the EBIDTA is still a loss of RM11mil and the loss has widened YoY, perhaps affected by Covid-19.

It's actually not a surprise at all when GPacket reported a loss-making result, I think investors are already used to it.

What I want to bring out here is why "The Star" is helping GPacket to "beautify" the report?

I have seen news title like this before in which revenue or profit increases by so much and so much but actually QoQ everyone knows that it's a very bad result.

For example, previous year similar quarter (YoY) profit was RM1mil and current quarter profit at RM2mil, the news title will be "100% increase in profit" or "profit doubled", but the usual quarterly profit is at RM10mil.

This result of RM2mil profit is a "gap-down" result by current standard.

This time The Star seems to deliberately and totally ignore the loss-making part. The whole article only talks about how much revenue has increased in all the business segment and doesn't mention whether it is making a profit or a loss.

I don't mean that GPacket is a bad company. Its revenue increases significantly and it seems to be in the right industry of AI, digital and communication service.

However, there must be a reason why it's always hard to make profit, and I think I know the reason.

Saturday 27 June 2020

A Different Bear in 2020

Back in May, I heard that someone who has never buy any shares in stock market before, earns more than RM300,000 in gloves stocks.

He just needs to follow his friends and "online teachers" to trade. Making money is so easy in stock market.

It's a fact that the stock market welcomes a lot of newcomers like him during this Covid-19-induced bear market.

Despite how the indexes drop in record pace and how bad the economy data show, the stock market staged a quick V-shape recovery.

This stock market & economy forecast mismatch is certainly contributed by technology - the ease to communicate and trade in stock market.

Back in the 1990s while many were joining the euphoria in shares trading, there were no smartphones, chat groups, Facebook etc. I doubt there was any online trading platform at that time with the super slow dial-up internet connection.

We had fixed line phones and remisiers. When you want to buy or sell shares, you have to call your remisier and queue up. I can imagine how difficult it was to get in contact with the remisiers when the market was hot.

Many investors and speculators did not have real time share price in front of their eyes. My parent bought a small Sony TV with Teletext just to follow the share price movement. It attracted lots of friends and relatives to "watch" this TV.

It must be a best-seller at that time.

There was no smartphone with data and no online trading platform to view the share price and trade the shares at a few clicks. There were no social medias in which investors and traders could share information, news and more importantly, tips & "insider news".

So when the market crashed in 1997, people just threw their shares out of the fear of unknown and many retail investors just left the stock market forever.

Ten years later during the market crash in 2008, online trading was definitely there but still not widely used. Hand phones were more common but they were not "smartphones". Even with a smartphone, data was often limited and I guess mobile phone trading was still not there.

Nokia, Ericsson, Blackberry etc still ruled the market at that time.

There were still no phone-data based messaging and chat groups like Whatsapp, while Facebook was not that "commercialized" and popular.

Stock trading can be done quite easily online through a computer though. However, if you don't have a computer around you, you can't do trading unless you call your remisier or agent.

This time in 2020, it's totally different. Every adults including foreign workers has a smartphone and phone data is getting cheaper and cheaper. People use smartphones to trade which is as easy as ABC. You can trade even when doing your business in the toilet.

Social medias are now widely used to communicate and share information. Once a guru says "buy", the message spreads like wildfire and immediately share price will go up. Once a sell call is made, share price can immediately drop, at least temporarily.

This is a world where information can be obtained easily through internet. Everyone is aware that a stock market crash will eventually rebound. Everyone knows that the best time to buy shares is during a bear market.

If you don't know about all these, very quickly you will know as you will find them on your Facebook or Whatsapp or others. Someone made a good profit and might share it out. Hundreds of newcomers know it and wish to follow the footstep.

It's just like that "someone" who does not have a clue about stock market but earns RM300,000, he might have been attracted into the stock market after hearing or reading something from his friends or relatives..

Stock markets worldwide are supposed to be bad at this point of time. However, they are not. 

Retail participation has increased significantly during this time and certainly plays a part in the rebound while neutralizing the effect of foreign funds exit. 

Trade statistics of May 2020 shows that local retail investors contributed more than local institutions in term of either value (32.4% vs 28.7%) or volume (45.3% vs 23%). Though I never track such statistics, I read that retail participation usually does not exceed 20%.

"Local Nominees" also make up a big portion of the trades. I wonder whether retail investors who open a nominee account are included here. If it is, then almost half of the stock market is "controlled" by retail investors or speculators.

Now we are coming towards the end of Jun and the stock market seems to lose some steam.

When more businesses shut down and unemployment figure rise inevitably, will the stock market still be resilient? We won't know.

For someone who just came in the stock market and earned RM300,000 in less than a month, definitely he won't stop here.

If he is to stay long in the stock market, perhaps he should learn the fundamentals of stock market investment, either by self-study or paid lessons. If not, someday he might end up like a lot of people who don't even want to talk about shares after 1997-98.

Sunday 21 June 2020

JAKS: Cash Cow In The Making?

Readers who follow this blog long enough should know that I invested in Jaks before. I bought in Feb17 but sold all in Nov17.

I bought Jaks because of its Vietnam power plant venture. It is a 2 x 600MW coal fired thermal power plant in Hai Duong with a BOT of 25 years. Jaks owns 30% shares in the JV with CPECC of China, with an option to increase the shares to 40%.

At that time, I didn't know how to predict the profit to Jaks when the plants are ready and running. I just knew that Jaks will pocket 100% the USD454.5mil (~RM1.8 billion) EPC contract.

The reason I invested in Jaks back in 2017 was simply because of this EPCC. It started to register good profit from its construction of power plant in Vietnam. I predicted that such profit will continue to rise.

I was aware that Jaks was struggling a bit in its property development & investment arms but I didn't expect those issues to be dragged for so long.

Anyway I sold all the shares in Nov17 due to various reasons and rarely looked back at the stock.

Jak's share price swung wildly from RM1.80 to RM0.40 then went up to RM1.50, back to RM0.60 due to Covid-19 and around RM0.90 now after the announcement of rights issue.

A famous investor quickly became the largest shareholder and then exited completely, which contributed to the movement of the share price.

Now, the power plants are about to be ready in Q3 of 2020. Construction profit from Vietnam will stop but profit from sales of electricity to Vietnam government will start.

How much can Jaks profit from the sale of electricity?

I don't have any idea until I read the article posted by DK66 in i3investor.


The most reliable earnings guidance from Vinh Tan 1 power plant

What makes the most reliable earnings forecast ?

Peer comparison is the most reliable and convincing method for making earnings forecast if the subject exhibits the following characteristics;
  • high degree of earnings stability and foreseeability
  • high degree of resemblance in operating terms and conditions

The higher the similarity between the subjects in comparison, the higher the accuracy of forecast.

Peer comparison evaluation method alleviates the need for making excessive adjustments, assumptions and projections which in most cases would cloud the integrity of the results derived. It is often derived from actual operation of businesses under terms and conditions which may not be well understood or considered by the evaluators of other methodologies. In other words, it is the most realistic forecast of earnings potential of a company operating under the same geographical roof. 

Vinh Tan 1 Thermal Power Plant

It is located in Vietnam's southern province of Binh Thuan.

The coal-fired power plant includes two 620-MW super-critical generating units which is 55% owned by China Southern Power Grid, and constructed by CEEC. CEEC is the holding company of CPECC who is Jaks' partner in JHDP.

Vinh Tan achieved full commercial operation on 27th November 2018 (COD).

Why compare to Vinh Tan 1 ?

Hai Duong, Vinh Tan 1, and Mong Duong II are all 100% foreign owned power plants in Vietnam operating under 25 years BOT contracts with capacity around 1,200 MW. All their BOT contracts, power purchase agreements, coal supply agreements were signed around 2012.

Vinh Tan 1 is an extremely close model for Jaks Hai Duong power plant because; 
  1. Both were awarded by the Vietnam Government around 2011
  2. Both BOT contracts were signed with the Ministry of Industry and Trade (MOIT).
  3. Both are Coal fired power plants costing around US$1.8b
  4. Both around 1,200MW capacity
  5. Both are 100% foreign owned and operated by Chinese corporations
  6. Both are adopting chinese technology
  7. Both under 25 years Build-Operate-Transfer (BOT) scheme
  8. Both are guaranteed by Vietnam Government
  9. Both Power purchase agreements signed with EVN
  10. Both coal supply agreements signed with Vinacomin
  11. Both under USD1.4b bank financing
  12. Both under max 18 years loan tenure allowed by Vietnam government

Therefore, Vinh Tan 1 and JHDP should exhibit extreme high resemblance, if not identical.

Extracted from the 2019 Annual Report of China Southern Power Grid Corporation

Profit attributable to minorities interest

Vinh Tan 1 = 越南永新一期电力有限公司 

This is the first full year operation results of Vinh Tan 1 since commercial operation in November 2018

Net profit after tax for 2019 = RMB1,071m = RM652m (RM/RMB conversion rate of 1.64)

Hence, potential earnings attributable to Jaks

@30% = RM652m x 30% = RM196m = EPS RM0.30

@40% = RM652m x 40% = RM261m = EPS RM0.40

Free Cash Flow

Annual free cash flow = RMB1,609m = RM981m (RM/RMB conversion rate of 1.64)

Hence, potential free cash flow attributable to Jaks

@30% = RM981m x 30% = RM294m = RM0.45 per share

@40% = RM981m x 40% = RM392m = RM0.60 per share

Dividend Distribution 

You may noticed that there was no distribution of dividend in 2019 despite healthy cash flow of RM981m. This is due to the need to build cash reserves requirements for bank installments, working capital, maintenance, coal inventory, and statutory reserves. Aggressive distribution policy is expected once the cash reserve requirements are met as evident in the case of Mong Duong II, another similar plant in Vietnam. Below is the distribution pattern of Mong duong II since commercial operation in April 2015. The amounts are converted to Malaysian Ringgit at 4.35 to USD.

Year   Q1      Q2       Q3      Q4          Total
2016            9m       74m    122m      205m
2017           109m               113m      222m
2018           117m               78m        195m
2019           122m   196m   13m        331m

2018 dividend distribution was affected by the restructuring of long term project borrowings to reduce future interest costs. This has resulted in a one time restructuring cost of USD31m.

Note that first major dividend distribution by Mong Duong II started after 15 months of operation. By the end of 2019, Vinh Tan 1 has 13 months of operation. Hence, Vinh Tan 1 is expected to start dividend distribution in 2020.


Vinh tan 1 has only provided one full year operating results for evaluation in this article. There is no information to whether there were any material extraordinary gains of losses included in the operating results. Nevertheless, the nature of the business of Vinh Tan 1 whch is stable and foreseeable with majority of its earnings derived from capacity payments mitigated such concern. Moreover, my previous studies provides further assurance of the results of Vinh Tan 1. 

Vinh Tan 1 classifies its power plant as concession asset instead of loan receivable as required by the new international accounting standard. Adoption of old accounting treatment has resulted in lower total earnings of Mong Duong II by USD203m since operation with its 2018 earnings increased by USD40m after adoption of new accounting standard. Since continuing with old accounting treatment does not lead to overstatement in earnings of Vinh Tan 1, the higher earnings effect to JHDP is disregarded in this article on prudent grounds.


Earnings guidance provided by Vinh Tan 1 is by far the most straight forward and reliable estimate of JHDP's future earnings potential. Most evaluation methods require assumptions or management guidance and complicated computations. It is difficult for those without sufficient knowledge of those methodologies to express confidence. 

Vinh Tan 1's earnings represents results from actual operation of a similar power plant in Vietnam which is also managed by a Chinese corporation. 

Vinh Tan 1's earnings jibes with my previous estimates derived using various valuation methods.

This article concludes that JHDP is expected to deliver EPS of between RM0.30 to RM0.40 to Jaks. At PE of 10 to 15 times, Jaks is worth between RM3 to RM6.

I hope this article has raised your level of confidence in Jaks significantly.

Thank you and happy investing !



I think this is an excellent and insightful prediction on Jaks's potential profit from the power plant. With potential EPS of 30sen, it's RM3 if PE is 10x!

Not only this, the predicted free cash flow of close to RM300mil a year to Jaks is just superb. This is possible due to the high depreciation and amortization of the power plant.

Even if the profit contribution from Vietnam is only half at RM100mil a year, the potential EPS of 15sen is still good compared to current share price of around 90sen.

After being delayed due to Covid-19, it looks like the power plant is preparing to deliver its first electricity in July. Commercial generation is expected in September for the first unit, while the second unit is scheduled to run in January 2021.

Anyway, this is not a buy or sell recommendation on Jaks. Nothing is without risks. So, invest at own risk. 

Thursday 18 June 2020

Jaks Worth Only 40sen?

On 22 May 2020, the share price of Jaks closed at RM1.03. 

Then it announced a corporate exercise of rights issue of shares (4 existing shares : 2 rights shares) and warrants (2 rights shares : 1 warrant).

The next trading day, its share price fell 15% to close at 87.5sen. 

I guess this type of reaction occurs to most cash calls as investors might be worry of the potential dilutive effect.

It might be the case in Jaks, and might also be possibly due the lowish illustrative price of Jaks rights shares at 40sen per share.

Public Bank quickly downgraded its target price substantially from RM1.13 to RM0.77 on "potential dilution of the cash call".

Obviously it will be a massive 50% increase in outstanding shares immediately, and potentially up to 75% when all the new warrants are converted into shares. EPS will be adjusted lower by 33% & 43% respectively. 

However, is there any dilution effect on shareholders' holding?

If I cut a large pizza into 4 equal pieces and I get one piece, I have 25% share.

Then there is a second pizza which is half the size of the first pizza up for sale. It is cut into 4 equal pieces as well and I'm eligible to buy one piece or 25% of it. Even though this piece is 50% smaller than the first one, it's still a 25% share for me.

Then I am given a voucher to buy 25% of a new pizza which is only a quarter of the size of the first large pizza. If I use the voucher to buy it, my overall share in these 3 pizzas is still 25%.

There are more pizzas now, but I still have 25% of all of them. So, there is no worry about the dilution effect for existing shareholders after the rights issue. 

Is it worth to buy those extra pizzas? If the pizzas are tasty and value for money, why not? If the pizzas taste terrible and are expensive, why should I buy more?

Even if you don't want to buy those extra pizzas, you can sell your rights and vouchers to get cash. You lose your shares but gain cash. 

The rights shares price is proposed at 40sen as illustrative purpose. The actual price will only be decided according to the latest share price when the final announcement is made. 

This 40sen does not mean that the true or expected value of Jaks share price is 40sen.

When the announcement was made on 22 May, the closing share price of Jaks was RM1.03, while the 5-day VWAMP (Volume Weighted Average Market Price) was RM1.07.

The price of rights share is usually determined by giving a discount to the TERP (Theoretical Ex-Rights Price).

TERP as its name suggests, is the theoretical adjusted share price after the rights issues are exercised. It is calculated as:

market value before rights issue + cash raised from rights issue
            total numbers of shares after rights issue

For Jaks case, the share price used to determine the market value is the 5-day VWAMP (RM1.07), while the outstanding shares that day was 651.1mil

market cap before rights issue =  RM696.7mil (651.1 x 1.07)
cash raised from rights issue =  RM130mil (325 x 0.40)
total shares after rights issue =  976.1mil (651.1 + 325)

TERP = RM0.85

The proposed rights share of 40sec each is a 52.94% discount to the TERP of 85sen.

The management mentions that rights share price will be at least 50% discount to the TERP. So it might change if the share price move substantially up or down from RM1.07 when the price fixing date arrives. 

I don't have a lot of experience regarding rights issue but I think it is common for such a huge "discount" given to the rights shares, even though in reality share price will also be adjusted accordingly so that shareholders do not get anything at "discount" or "free".

In other words, you may think that you get the rights shares cheap at 40sen and earn big from it immediately. Actually it's not, share price after the rights issue will be adjusted lower and you have nothing to gain or lose.

I have subscribed to Inari's rights issue with warrant before in year 2014. When the cash call was first announced in early July 2014, Inari's share price stood slightly above RM3, with 5-day VWAMP of RM3.09.

It was a 8:1 rights share + warrant. TERP was RM2.91 and the illustrative rights share price was just RM1.50, which was also around 50% discount to TERP.

Did Inari's share price fell to RM1.50? Of course no, not even close.

The final rights share price was fixed when the market share price was around RM3, so the rights share price was the same to the proposed figure of RM1.50.

For Dayang's rights issue in 2019, initially its proposed rights share price was at RM0.80, which was a 33% discount to TERP of RM1.14 and the 5-day VWAMP was RM1.23.

Dayang's share price initially dropped to around 90sen in respond to the cash call but later went up higher and higher to over RM2 before the rights issue ex-ed.

The final rights share price was fixed at RM0.92, with around 50% discount to TERP of RM1.83, while 5-day VWAMP was at RM1.92 which was 56% higher compared to the time when announcement was first made.

These show that rights shares offered at 50% discount to TERP is not uncommon.

Rights issues can be good or bad. If it is for good reasons, share price will likely go up. If not, share price will inevitably drop.

For Jaks, whether it's good or bad, it's up to you to decide.

Tuesday 16 June 2020

The Vaccines Race

Covid-19 is wreaking havoc globally. At the moment more than 8 million people have already been infected with more than 440,000 death registered.

Like any other viruses such as HIV, the hope to find a medicine to cure it is slim. So, the only way is to develop a vaccine to prevent the infection.

Who gets the vaccine first, who will rule the world. It's like the space race during the cold war era.

You can imagine that the most kiasu leader in the world will definitely go all-in and do whatever he can to make sure that he beats everyone else.

Experts say that the development of vaccine usually takes 12-18 months. As Covid-19 starts in January 2020, we might see its availability early next year if we're lucky enough.

However, this is no ordinary vaccine. This is the vaccine that can rule the world in term of politics and economy. 

So it's not a surprise that its development will be at a breakneck speed, and funding is not an issue at all. There is a chance that we might get it sooner than usual.

Once the vaccine is successfully rolled out, all of the 7.8 billion people in the world need it. I guess those who have been infected and recovered also want to have it even though they might not need it.

A development of a vaccine generally needs three phases. A few of the Covid-19 potential vaccines have entered the final phase at this moment, which involves large scale trials to ensure its efficacy and safety.

Optimists have anticipated the availability of Covid-19 vaccines by the end of year 2020, with all manufacturing and delivery of the vaccines planned ahead.

When this Covid-19 vaccine is available, it will be an extremely good news for humankind. It will save lots of people's life and livelihood. It will save lots of businesses and countries.

The only party which might be negatively affected are those businesses who thrive on the Covid-19 pandemic.

If the vaccine trials are making good progress towards the end of 2020, personal protective equipment (PPE) orders such as medical gloves and face masks might gradually reduce and go back to the usual demand once an effective vaccine is available.

Investors who invest in Covid-19 related stocks predicting a sustained explosive demand for their products should be careful about this.

Of course if the trials of vaccines fail or keep on being delayed, then Covid-19 will be never-ending until everyone gets infected and acquires natural immunity. 

HIV is a well-known virus which has been discovered for more than 30 years, so far scientists fail to develop a vaccine for it.

Dengue virus, another virus that kills many Malaysians every year, still does not have a convincing vaccine even though it has been approved in recent years.

Vaccines for SARS & MERS which are also coronavirus, are not available may be the outbreaks were relatively short-lived and well-controlled.

Nevertheless, we have vaccines against viruses such as Hepatitis A & B, HPV, mumps, measles, chicken pox and influenza.

I don't know whether we will ever get a vaccine for Covid-19. From the Covid-19 vaccine updates by WebMD below, it looks promising.

Covid-19 vaccines update from WebMD last updated on 15 June 2020. 

Moderna. Moderna's vaccine, mRNA-1273, uses messenger RNA, an approach that does not require a virus to make the vaccine. The messenger RNA, or mRNA, carries instructions for making the spike protein, a key protein on the surface of the SARS-CoV-2 virus that allows the virus to enter cells when a person gets infected. When the vaccine with this instruction molecule is injected, it goes to the immune cells and instructs them to make copies of the spike protein, acting as if the cells have been infected with the coronavirus. Allowing other immune cells to develop ways to protect you gives immunity.

mRNA-1273 is in phase II of its clinical trial, designed to evaluate safety and effectiveness. Moderna, a biotechnology company working with the National Institute of Allergy and Infectious Diseases, intends to enroll 600 healthy volunteers equally divided into two age groups: 18 to 55, and 55 and older. The company announced on June 11 that it will start phase III of its trial in July with 30,000 volunteers. Phase III, the final clinical trial phase, evaluates effectiveness in a much larger group and compares how well the vaccine works compared to a placebo. Moderna will test a 100 microgram dose and said the company is on track to deliver 500 million doses per year. In mid-May, the company announced that all eight initial trial volunteers given two different dose amounts reached or surpassed the level of antibodies capable of neutralizing the virus.

University of Oxford and AstraZeneca. University of Oxford scientists are partnering with AstraZeneca to develop a COVID-19 vaccine made from a weakened version of a common cold virus, the adenovirus, taken from chimpanzees. The adenovirus is genetically altered so it can’t reproduce itself. The vaccine is combined with genes of the spike protein to trigger production of vaccines against it that allows the immune system to destroy the SARS-CoV-2 virus.

A phase I/II clinical trial began in April in the U.K. to assess its safety and how well it works in more than 1,000 healthy volunteers 18 to 55 years old. Now, recruiting has begun for phase II/III trials, which will enroll up to 10,260 adults and children. For both phase II and III, volunteers will receive one or two doses of either the COVID-19 vaccine or a licensed vaccine that will be used as a control for comparison. In early June, Brazil, hard hit with COVID-19 cases, joined the clinical trials, planning to test 2,000 volunteers there.

After reaching a license agreement with Oxford University and others, AstraZeneca agreed to supply more than 2 billion doses globally, anticipating delivery of 400 million doses before the end of 2020.

Pfizer and BioNTech. The companies are testing four vaccines, each using messenger RNA, with a different combination of mRNA to targeted antigens (to produce antibodies). Called BNT162, volunteers in Germany and the U.S. have received the vaccine in a phase I/II clinical trial. This trial will evaluate the safety, ability to give immunity, and the optimal dose of the four candidates in a single and continuous study. Initially they are testing the vaccine on people 18 to 55. Once a given dose level is proven safe and effective, older adults will be immunized. Pfizer is predicting the production of millions of vaccine doses in 2020, increasing to hundreds of millions in 2021. Manufacturing sites have been identified both in the U.S. and elsewhere.

Inovio. Inovio's vaccine, INO-4800, is a DNA vaccine in phase I clinical trials, with 40 volunteers. The technology uses DNA designed to produce a specific immune response. A handheld smart device uses a brief electrical pulse to open small pores in the skin to deliver the vaccine. Once the DNA is inside a cell, it instructs it to make many copies of the artificial DNA, and this stimulates the body's natural immune response.

Results from the U.S. phase I trial are expected in June, and a phase II/III trial is expected then to begin. Human trials are also expected to begin this summer in China and South Korea. Multiple partners and collaborators are involved, including the Bill & Melinda Gates Foundation, the National Institutes of Health, and others.

CanSino. CanSino Biologics in Tianjin, China, is working with the Beijing Institute of Biotechnology on a coronavirus vaccine using a type of genetically altered adenovirus known as Ad-5. The platform has been used successfully to develop the Ebola virus vaccine.

In late May, researchers reported on results of the phase I safety study, in which 108 people got three doses (low, middle, high) of the vaccine. Most volunteers developed immune responses, but fewer had the neutralizing antibodies experts say are crucial to fight off the virus.

The company launched phase II in mid-April, with over 500 enrolled.

Sinovac Biotech. Sinovac Biotech's vaccine, CoronaVac, uses an inactivated version of the virus. Early results of a Phase II clinical trial released in June show that the vaccine induced antibodies to neutralize the virus after 14 days in 90% of people who received it. The vaccine requires two injections, given two weeks apart, according to the company.  No serious side effects have been reported in either phase I or II trials, which included 743 healthy volunteers.

Sinovac will partner with Instituto Butantan in Brazil to launch a phase III trial. The company said it will develop the vaccine for global use.  

Johnson & Johnson. The company said it expected to start testing its vaccine in people in the second half of July. The vaccine combines genes from the coronavirus with a modified adenovirus. The first trial will include more than 1,000 healthy adults aged 18 to 55 and others 65 and older, and will take place in the U.S. and Belgium.

Other efforts. The Trump administration chose five companies for Operation Warp Speed, the national program to accelerate the development, making, and distribution of COVID-19 vaccines, treatments, and diagnostics. They are: Moderna, Johnson & Johnson, Merck, Pfizer and BioNTech, and AstraZeneca/Oxford University.

Friday 12 June 2020

Batu Kawan: Nothing Comes Cheap

I have been following the development of Batu Kawan for around 10 years. I witness it growing from an embryo to a toddler now.

Yes, it is growing. It's not a miscarriage. 

If you check the label of "Batu Kawan" in this blog, you'll know how much my interest is in its development since it was an empty land with shit everywhere. 

This Batu Kawan is not a plantation company. It's the next satellite town in the mainland of Penang.

I always have a plan to own a property in Batu Kawan and I watched closely those property companies involved.

I quickly signed a cheque to book a unit in Eco Horizon, only to give up after the price of 2 storey terrace was confirmed to be over RM800k.

I went to the initial launch of Aspen's Vertu Resort Condominium in early 2016. The price of those half-furnished units were around RM400 psf, which was not too bad but the total units launched were almost 1,300!

Paramount property also launched their first project of Utropolis Batu Kawan at the end of 2016 called "Sensasi". Even though the price tag was "affordable" at below RM300k, it's only a 500 sq ft single room unit which was more than RM500 psf.

Now 4 years have passed, Eco World has launched 3 phases of its landed projects there, namely Ashton, Byrdon & Camdon. 

Camdon is promoted as "New landed home ONLY from RM426k". Well, you only get one floor of a 2-storey townhouse, not even one and a half floor... I think this starting price of RM426k is only for the upper floor, so it's a "landed home" without a land except car park. 

Aspen has added Vivo & Vogue high-rise & high density projects, as well as a rare landed development Viluxe which was priced almost similar to Eco Horizon. Paramount has come up with two more high-rise projects Suasana & Sinaran.

I read that people queued overnight to book a unit of Vivo Executive apartment in 2019. I thought this only happened in 2010-2012? 

Luckily this Vivo project offers 1,530 units to fulfill the needs of so many people.

Let's check out how many units of apartment have been launched in Batu Kawan now, excluding the low-medium cost Pangsapuri Suria by the state government.

Utropolis @ Batu Kawan

Utropolis Sensasi
2 blocks
Size: 500 - 729 sq ft
Total units: 612

Utropolis Suasana
2 blocks
Size: 926 - 1313 sq ft
Total units: 491

Utropolis Sinaran Residence
2 blocks
Size: 667 - 1044 sq ft
Total units: 982

Aspen Vision City

Vertu Resort Condominium
5 blocks
Size: 740 - 1290 sq ft
Total units: 1282

Vivo Executive Apartment
3 blocks
Size: 730 - 830 sq ft
Total units: 1530

Viio Executive Apartment
2 blocks
Total units: 980

Vogue Lifestyle Residence
2 blocks 
Szie: 530 - 1750 sq ft
Total units: 627 

In total there will be 6,504 high-rise units available when all these 7 projects are completed. Surely, there will be more to come, as Eco World hasn't started its high-rise project.

If you are buying for own stay, there is no problem. If you are buying for investment, then you might face some problem in renting or selling it. 

However, I think long term should be alright if you have the holding power.

I foresee Batu Kawan as a thriving township in the future. That's why I always wish to get a property here either for own stay or investment. 

Before that, everything was blur, you heard the news but not sure whether they were going to materialize. 

We have a 18-holes golf course & Eco Marina cancelled. Bosch's initial RM2bil solar project was called off. The UK Hull University is also nowhere to be seen.

Columbia Asia Hospital, in which its construction was initially expected to be completed in 2019, might see its plan postponed or whatever. 

We saw Ivory divested from its partnership with Aspen to develop the prime land surrounding IKEA, and also Malton exited the land currently occupied by Eco Horizon.

Nevertheless, now we have IKEA up and running, that's the main thing, along with the decent Penang Design Village. 

Hull University is now The Ship Peninsula College who partners with another UK-based University of Plymouth, while KDU is now University of Wollongong (UOW) Malaysia KDU Penang University College. 

Peninsula College is starting their student intake now in Jun 2020, while UOW has done so earlier this year.

SJK(C) Kuang Yu is also said to be relocated to Batu Kawan from Kuala Muda.

For me, the catalyst for Batu Kawan development is its modern industrial park (BKIP). There are Honda, VAT, hp, Flextronics, Western Digital/Sandisk, Micron Memory, Haemonetics, Jabil, Boston Scientific, Hotayi as well as local companies stock market investors are familiar with such as Inari, Pentamaster, Vitrox, UWC, Mi Technovation, Greatech etc.

Bosch is making a comeback after recently signed a deal to set up a manufacturing facility here for the testing of semiconductor components and sensors.

You can imagine how many thousands of people working in Batu Kawan. There will be demand in properties here.

At the moment only the Utropolis Sensasi is completed and put on sales or rent. A simple search online shows that rental rate is not bad with 500 sqft asking for around RM1000, 729 sqft around RM1400 and studio around RM700 in average.

However, I'm not sure whether these rental rates have their market or not. If not, owners might need to drop it substantially to fight off the stiff competition. 

Vervea, the 3-storey shop offices next to IKEA & opposite of Eco Horizon, which were completed quite some time ago, are still mostly vacant even though the asking rental is quite attractive.

After giving up temporarily to grab a property in Batu Kawan since 2013, I do hope that I can get a cheaper one when a financial crisis strikes before year 2020.

Now it looks like the hope is slim.

Tuesday 9 June 2020

How Do I Choose A Stock To Buy?

A reader asked me how do I filter the stocks to buy. It's not easy to answer.

To make it short, I don't have a systematic way when it comes to selecting a company for investment. 

I'm not sure whether there is any established or better way to select or filter from a list of close to one thousand listed companies.

Basically, I have done it in many ways and I'll briefly discuss about them here.

First, I'll start with how I come to know a stock.

Screen through every single companies painstakingly

This was the method I used when I first joined the stock market back in year 2005. At that time, internet information was scarce. 

There was a thick book like a "Yellow Pages", which contained the information of all the listed companies in KLSE such as the business nature, historical revenue/profit, financial ratios such as EPS, ROE, PE ratio, debt/equity, as well as historical price chart.

I can't remember the name of this white & green colour book now as I have lost it many years ago.

Before I bought my first shares, I read a few investment books and I decided to follow their suggestion by looking at the fundamentals of the companies. So I made a stock selection criteria of ROE >15%, EPS growth >15% for at least 3 years & PE <10.

With these criteria, I screened through every companies in that thick book one by one. At last I came out with a few companies that matched the criteria. I still remember that the first 2 stocks I bought were Mahsing & WCT, and I made a profit from them.

Anyway, that kind of book is not published anymore due to the abundance of information which can be easily obtained on the internet.

Use KLSE Screener

Many years ago I came across this tool. I'm sure that most readers know what is it all about. You just need to key in your selection criteria (PE, ROE, DY, EPS etc) and the software will filter for you.

This is very easy and fast, and you can do it on your computer or smartphones. However, I seldom use it and don't really use it to select stocks since I started this blog.

From articles and news

Basically I do not actively look for a stock to buy, as investing in stock market is not a big part in my life, yet. I am quite passive.

I don't read business news and watch the stock market everyday. I do it sporadically when the interest comes and when I have the time.

You know, there are many articles that promote a stock in investment forum such as i3investor, some are very good and some are not. 

When a company secures a contract, reports good profit, ventures into new business or encounters headwinds, the news will certainly appear on online news portal such as The Star, The Edge and for Chinese, Sin Chew & Nan Yang. 

If the headlines of an article or news catch my attention, I will read them and sometimes it will lead me to study the company and then invest in it.

Analyst reports

I have trading accounts with Public Investment Bank & Hong Leong Investment Bank. However, I do not login to view all the reports because I only login when I plan to trade.

I read those analyst reports from i3investor, thanks to all the people that share them there. 

Analyst reports are a very important and useful tool for me. There are many information that retail investors like us have no access into. So, we need to depend on professional analysts who attend the company's AGM, investor briefing session or interview the management.

Regarding the target price derived by analysts, just take it as a reference and come out with your own target price. 

Of course different people have different opinion, and no one can predict the future with 100% accuracy. For Bumi Armada as example, someone gives it a target price of 10sen, while some value it at 56sen. That's a huge difference.

Now that Armada is at 26sen, who do you want to follow?

Quarterly Financial Reports

A listed company must release financial report every 3 months, we can get a lot of information from it.

Besides the revenue & profit, we can have a glimpse at its latest balance sheet & cash flow. The management will also explain the performance of the quarterly results and give a prospect of its business.

When a company has a good financial quarter, sometimes it catches my attention to further study it, IF I happen to bump into it as I only read 10-20 of those quarterly reports every 3 months.

I think this is a very common way for me to identify a stock to buy.

Before 2013, I only looked at the revenue and profit, EPS, ROE & PE ratio while making a decision.

After that, I include the balance sheet and cash flow, although not in a very detail fashion. I don't have accounting background, and have no one to ask except Mr Google when I have doubts.

I don't read annual reports unless from my invested companies or companies I plan to study. 

There is another way that can help me to find a good stock which I haven't use yet, which is subscribing to fundamental-based "Sifus" or other experienced investors.

I know that it might be a very good way to earn quick bucks from doing this. Many newbies and speculators pay the fee, and will surely buy when a stock is recommended as "buy call". This might push up the share price and quick profit can be made just like that.

Subscribing to such service can increase my chance of catching a stock with good potential, as I mention earlier that I'm quite passive in stock market and can't screen through all those listed companies and read all the announcement by myself.

At the moment, I still haven't join such groups. I'm still all alone.

How do I filter those stocks to decide whether to invest in them or not?

There are no strict rules now like I used to have in the past. Last time I set criteria for EPS growth, PE ratio, ROE, D/E ratio, DY etc. I usually don't go deeper into ROIC, FCF, PEG ratio & EV as I'm not a true value investor.

Let me show a few real examples of how I bought a stock in the past, if I still remember them correctly.

Latitude Tree
I first noticed Latitude after it released a very good quarterly results in Nov 2013. Then I studied its previous quarterly reports, annual reports and company website. I checked its previous announcement from Bursa Malaysia website. There was no analyst cover and not many news on this company. I found out from Bursa announcement that it was in the process of acquiring the remaining shares of its very profitable Vietnam operation. I projected the future earning and it's a no-brainer. 

If my memory serves me right, I first knew about Inari from a news article in Jun 2013. At that time, Inari was still a small little-known company and had proposed to acquire much bigger Amertron of the Philippines. It certainly caught my attention and the same process started. I checked its previous quarterly & annual reports, previous Bursa announcement, searched for online news and visited the company website. 

I remember that before I bought Inari shares at around 70sen (22sen now after adjustment), its share price has just rallied from 30-40sen to 70sen in a short period of time. Most investors commented that since it had already gone up 100%, it was very risky to buy at that time. I bought it anyway. Sometimes we have to ignore the noise of forummers and believe in our own judgement. Inari proves to be a big success for me. 

I came across an article or news shared by someone in i3investor about KESM in Jan 2016. It looked good to me and I decided to study it further. I saw that there was significant jump in its latest 2 quarters and by simple forward PE estimation, it was deemed undervalued for me. At that time its share price was falling from RM6 and I got it at RM4.80 and then around RM3.90 when it dropped further, with average price of RM4.42. 

It's lucky for me that its financial performance were good and share price kept increasing to over RM22. I sold some at RM20 and the rest at only RM8+. 

I can't remember exactly how I came to know this company, which was a very cold and unknown company. From my record, I bought its shares on Mac 2015. I think may be from its previous quarterly result announcement in Feb 2015 which showed a significant jump in its net profit. It's not a very exciting result but I found out that it has just disposed its two loss-making subsidiaries and planned to acquire a growing profit-making peer. I felt that it would start a new page of growth and bought its shares. It was a great investment for me.

This was just a coincidence. I was studying a company with a name of Yokohama in Aug 2013. When I searched for it in Bursa website, I saw another company alongside it with a strange name of "YOCB" which attracted my attention. That's how I started to study this company out of curiosity. I bought it because of its low PE ratio and good dividend. It was not a bad investment for me though I might have sold it too early.

This is easy. I bought my first property from Tambun Indah and I certainly knew it well. As I was more focused in property investment at that time between 2008 and 2013, I knew a lot of other property companies and their projects.

At that time Tambun bought a vast landbank cheaply at Bandar Tasek Mutiara, which is located at Seberang Perai Selatan of Penang. We know that the nearby Batu Kawan is the next big thing. New projects were launched aggressively and each of them was rapidly sold out. So, it's also a no-brainer during such a property boom. 

Not every property stocks I bought at that time made money. Of all my completed buy-sell transaction up to today, the largest loss was Huayang, followed by Tropicana, both are property stocks. Huayang needs no introduction to investors at that time. Its revenue & profit was growing steadily, gave away mouth-watering dividends and multiple bonus issues. 

I felt like I missed the boat and always dreamed of owning its shares. Finally I became its shareholder in Sep 2014 at RM2.32, the price level which later proved to be at the peak. Even though subsequent quarterly results were good even with EPS of 11sen for 5 consecutive quarters, its share price just didn't go up but continued to drop instead. If we give a PE of 10x the share price should be at least RM4. Finally I cut loss at RM1.83 after 1 year and 4 months. Property was in the negative trend and we could not beat the trend.

I found out this stock after it released its FY19Q1 results in May19. The result was nothing spectacular, just that the market gave it a low PE of around 5x. After studying it like usual, there seemed to be slow growth in this company and I believed that its products have more demand nowadays. I bought in May19 and only in the end of 2019, the stocks price started to jump.

I would say that most of the time I find a company to invest through its quarterly financial report, while PE ratio and growth prospect are the main things I look at to decide whether to invest in it, although the debt ratio & simple cash flow still play a part.

So, how should you filter or select a company to invest in? The answer is read more, and do your own homework.